Managing the Information Technology Resource Jerry N. Luftman Chapter 2 IT Strategy Managing the Information Technology Resource Jerry N. Luftman © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 1

Chapter Outline Influence of 21st century business environment Definitions of strategy Role of IT strategy Strategic Alignment concept and model Processes and considerations in development of IT strategy © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 2

IT as Architects of Alignment Knowledgeable about new technologies Privy to tactical and strategical plans Be present in corporate strategy discussions Understand technology strengths and weaknesses © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 3

Six Key Enablers to Alignment Senior executive support for IT IT involved in strategy development IT understands the business Business-IT partnership Well-prioritized IT projects IT demonstrated leadership © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 4

Six Inhibitors to Alignment IT/business lack close relationships IT does not prioritize well IT fails to meet commitments IT does not understand business Senior executives do not support IT IT management lacks leadership © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 5

Today’s Business Environment Increased globalization Increased competitive pressure Frequent mergers Rapidly changing technology Evolving patterns of consumer demand © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 6

Competitive Advantage Today Unsurpassed relationships with one’s customers and suppliers Unique and adaptable business processes Ability to harness information and knowledge of employees Must become “Change Leaders” © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 7

Business Strategy Choices Selection of business goals Choice of products and services to offer Design and configuration of policies Appropriate level of scope and diversity Design and organization structure and administrative systems © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 8

3 Business Strategy Elements © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 9

Vision Where the company wants to go What the company aspires to be Clear, compelling, exciting Big Hairy Audacious Goals (BHAG) © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 10

Strategy How vision will be accomplished over specified time period Use of checkpoints Benchmarks to check strategy effectiveness Aligned with company mission and core values Provides architectural bridge between mission and vision © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 11

Mission Reasons the IT function exists Concise statement of what business the group is in Purpose and function of IT Review to identify for themes and ideas Identify core values © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 12

IT Strategy Set of decisions made by IT and senior management Deployment of technology infrastructures Relationship of technology choices to business choices © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 13

Aligned IT Strategy Intimate understanding of customers and evolving needs Managing knowledge- and information-based asset management Continuously innovate strategically relevant new processes Coordination of activities involving people, procedures, and technology © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 14

IT Roles in Strategy Transformation driver Enabler of transformation Create and exploit new markets Link customers to firm Define new standards of excellence Enabler of transformation Interconnect people and processes Span organization boundaries Bridge geographical distances © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 15

IT as Inhibitor IT strategy not aligned with business strategy Over-emphasis on technology Failure to recognize effective use of IT requires business process change © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 16

3 Management Subcultures Executive Focused on maintaining financial health Engineering Focus is outside organization Views humans as source of potential error Operator Based on human interaction Frequently operate at cross-purposes © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 17

Strategic Environment © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 18

Internal Business Domain Administrative Structure Functional, matrix, decentralized, process-based, geographic, or hybrid Critical Business Processes Identification of salient processes Human Resource Skills Acquisition and development of people skills © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 19

Strategic Fit Scope of Firm’s Business Distinctive Competencies Customers, products, markets, and competitors Distinctive Competencies Core competencies Critical success factors that provide competitive advantage Governance of the Firm Impact of regulatory agencies © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 20

Strategic Alignment Model Scope of Firm’s Technology Impact and support business strategy decisions and initiatives Systemic Competencies Technology capabilities IT Governance Pursue relationships and alliances to obtain IT competencies © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 21

Internal IT Strategy Domain IT Architecture Selection of technology and infrastructure Models used to define data, information, networks, applications, and systems IT Organizational Processes Critical to operation of IT organization Systems development, IT operations IT Skills Acquisition and development of people © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 22

Strategic Alignment Model Business Strategy Business Scope Distinctive Competencies Business Governance Organization Infrastructure and Processes Administrative Structure Processes Skills Strategy Technology Scope Systemic Competencies IT Governance IT Infrastructure and Processes Architecture Processes Skills © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 23

Functional Integration Linkage between the IT strategy domain and business strategy domain Support requirements and expectations of business’ organizational structure and processes © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 24

Planning IT Strategy Sequence of activities that transforms current alignment state to future alignment state Actively involve IT staff in development of vision and strategies Strengthen degree of strategic alignment © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 25

© 2004 Managing the Information Technology Resource, Jerry N. Luftman © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 26

Attributes of Champion/Sponsor Power Pain Vision Resources Long View Sensitivity Scope Public Role Private Role Consequence Management Techniques Monitoring Plans Willingness to Sacrifice Persistence © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 27

Champion vs. Sponsor Champion Sponsor Has compelling vision of “To Be” state of affairs Organizational credibility and reputation Communicates vision to all levels of organization Sponsor Obtain resources needed to implement champion’s vision Focused on aspects and details of strategy execution Source of funding © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 28

Forming the Team Senior decision makers from corporate IT, business IT, and senior business management Include systems architect and CIO Establish join understanding Commitment to goals and objectives © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 29

“As-Is” State Description Specify both business strategy and organizational infrastructure Baseline for senior management and IT Understand firm’s strategic positioning in IT marketplace IT governance Facilitated interactive workshop sessions 10-12 participants © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 30

SWOT Analysis Strengths Weaknesses Opportunities Threats Recommend strategies that ensure best alignment between external and internal environments © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 31

Strengths Distinctive Competencies Systemic Competencies Critical success factors Core competencies Brand, research, manufacturing, product development, cost and pricing structure, sales and distribution channels Systemic Competencies Capabilities and success factors important to strategies © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 32

Weaknesses Observation of existing business and IT problems Weaknesses will emerge from observation Effect on firm’s strategic positioning © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 33

Opportunities – Ansoff Matrix © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 34

Ansoff Matrix Positioning Strategies © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 35

Delta Model © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 36

Threats Rivalry Between Existing Firms Risk of New Entrants Power of Buyers Power of Suppliers Threat of Substitutes © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 37

Environmental Factors Political and Legal Environment Macroeconomic Environment Social Environment Technical Environment Demographic Environment © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 38

Strategy Alternatives Analysis © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 39

Scenario Planning Grid © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 40

IT Strategy Implementation Execute the strategy Commitment and engagement of senior business management Must occur prior to implementation planning Strategic Alignment Maturity Ability to adapt in harmonious fashion Adoption of Measurement Criteria Measure effects in several different dimensions © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 41

Periodic Review Ensure initial assumptions are correct Ensure implementation of plans are on schedule Measurements are captured and reported © 2004 Managing the Information Technology Resource, Jerry N. Luftman Chapter 2 - Slide 42